From Formalisation to Inclusion: Forecasting MSME Growth and Women’s Entrepreneurship in India using Exponential Smoothing

Abstract

This study examines the growth patterns, employment potential, and inclusivity aspects of India’s Micro, Small, and Medium Enterprises (MSMEs) during the Udyam phase (formalisation), with a specific focus on women-owned businesses. It underscores the importance of inclusivity in development. While many studies have analysed MSME growth and women's entrepreneurship separately, very few address these topics during the Udyam phase, particularly with respect to inclusivity. Additionally, this study forecasts MSME growth and employment generation using exponential smoothing, thereby filling a gap in the existing literature. Secondary data is obtained from the annual reports of the Ministry of MSME and the Udyam Portal, covering the period from 2020-21 to 2024-25. The study adopts a descriptive-analytical approach. The Exponential Smoothing Model is used to forecast growth trends and employment potential, while Pearson’s correlation analysis evaluates the relationship between enterprise growth and job creation. Further, a composite North-South Women MSME Inclusivity Index (NS-WMII) is constructed to assess inclusivity across various dimensions. The findings show that formalising businesses has significantly increased the number of registered MSMEs. Many previously unregistered firms have become registered, strengthening the sector's role in job creation. Forecasts indicate that the total number of MSMEs could exceed 93 million by 2029-30, with cumulative employment generation potentially surpassing 640 million jobs. Our analysis demonstrates a strong positive correlation between enterprise growth and job creation, highlighting the crucial role of MSMEs in promoting inclusive economic development in India. In addition to analysing overall trends, a regional comparison of women-owned micro, small, and medium enterprises (MSMEs) in selected Northern and Southern states is done, resulting in the development of the NS-WMII. This index accounts for various factors, including intra-state participation, national contributions, and growth momentum, to assess inclusivity in women’s entrepreneurship. Our findings reveal a significant regional imbalance: Southern states demonstrate higher levels of inclusivity and more stable entrepreneurial ecosystems, while Northern states are experiencing rapid growth but have comparatively weaker levels of inclusion. This study integrates a clear time-series forecasting method with a newly developed inclusivity index to deliver analytical insights relevant to policymaking. Our findings emphasise the significant impact of formalisation reforms and underscore the necessity for regionally tailored, gender-sensitive strategies to enhance the quality of micro, small, and medium enterprises (MSMEs).